Health Insurance Can’t Pay For Everything

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The basic purpose behind insurance is very simple – to provide individuals with protection against a potential, unexpected risk. Nothing more, nothing less. In the early 1900s, the original intention was simply to ease the possibility of financial disasters. Issues that could result from being hit with a serious illness or injury, such as losing your home or your job. It was never to see how cheap we could get care or be a lever to control health care costs. Nor was it intended to pay for simple, routine doctor visits and basic care. It was there to protect your estate, and family, if something catastrophic happened to you.

Unfortunately, we don’t see – or use – health insurance like that anymore.

Today, we expect health insurance to pay for everything from basic preventive care to the most expensive drug or procedure. We expect the best, most highly trained doctors at the best hospitals to provide services. We require they be available twenty-four hours a day, seven days a week. We insist that no procedure, test, treatment, or provider be considered “uncovered” or “out-of-network”. And while we call on policymakers and insurers to provide all this, we cry out with every increase in premiums.

You Pay For What You Get.

With ever increasing medical costs, a growing shortage of physicians, the absurd amount of administrative work required to manage insurance billing, and the demand for more and more services to be covered, premiums have nowhere to go but up.

Unlike Medicare, private insurers have to negotiate with physicians and hospitals to arrive at rates that keep the providers happy, and THUS in the insurer’s network. They also need to make sure that premiums cover expenses, salaries – not to mention actual claims. This has led to a growing number of people arguing that if we did away with “for profit” insurance carriers, and let the government handle it all, we could solve the healthcare crisis. That’s not exactly  true.

If we stay on our current path, which we’ve been on with very little deviation for the last 50 years, it’s likely that no amount of government action is going to help. Total Medicare spending is currently 3.7% of GDP. In 2019, the GDP of the US was $21.43 trillion, putting Medicare spending at just shy of $723 billion annually. This is expected to grow to 5.9% of GDP in the next 20 years. Increases in enrollment and services, coupled with rising health care prices are expected to push Medicare per capita spending up at an annual rate of 5.1% a year by 2028. Compounding the problem is this accelerating spending (which will soon be over a trillion dollars each year) still isn’t sufficient to cover provider costs. According to MedPAC, overall in 2019, hospitals had a -2% margin on Medicare payments.  

While Medicare probably won’t be bankrupt soon, at the very least, that amount of spending (that continues to do nothing but climb) presents massive long-term budgetary challenges for policymakers and hospitals. It also results in lower net paychecks and higher bills every April for taxpayers. Worst case? The whole system becomes unsustainable and collapses.

As Stuart Guterman, past VP at the Commonwealth Fund and Medicare and Cost Control has said, “Medicare spending goes up because people use it more.” This is also true of non-Medicare health insurance. Which brings us to a potential solution to our problem.

Reducing Costs Is Up To Us.

Most of us are aware of the declining health of the US population. The obesity rate among adults is 42% and about 20% among children, costing an estimated $190 billion each year. Heart disease is responsible for 1 in every 4 deaths at a cost of about $219 billion. Diabetes affects over 10% of the population in the US, with a price tag of $327 billion. Added sugar consumption has risen 30% over the last few decades. A staggering 30% of Americans are inactive. On top of all this, our voracious appetite for healthcare has increased from (all in 2018 dollars) $1,832 per person in 1970 to a whopping $11,172 in 2018! Talk about unsustainable.

To lower costs, we need to take a more active role in our personal health and our personal healthcare spending. We can no longer expect to live unhealthy lifestyles, only to run to the doctor every time we break. By making healthier choices, we can reduce the need for doctor visits, minimize our reliance on prescriptions, and lighten the burden on an increasingly overstressed system. Non-emergency healthcare spending (which accounts for 90+% of overall healthcare costs) needs to be treated as any other expense, with consumers having the ability to shop and compare prices, and the quality of providers in their area. If we can do it for painters, a handyman, or a plumber, we can do it for medical providers. Rather than a vehicle we expect to cover all of our healthcare costs, health insurance needs to be treated as it was originally intended, as stop loss protection against catastrophic losses from unexpected injuries or illnesses.

We all care about the unsustainability of continuously rising healthcare costs, and the systems that currently fund and pay for them. Lowering costs in such a massive, complex system won’t happen overnight, but it is possible. If we all commit to taking control of both our health and our spending, together we can begin to drive health care costs down. This will result in a healthier population and a strong, efficient and sustainable healthcare system.